With most of the recent IPOs failing to attract a good response from investors due to expensive valuations, a handful of street smart brokers and financiers seem to have sensed an opportunity to make a quick buck.

Financiers, who have been acting as informal underwriters, wait for those initial public offerings that are unable to garner enough subscription. Many of the recent issues have seen a weak response in the high net worth individual (HNI) and retail portions of the issue.

In many cases, these financiers subscribe to the issues, which have evoked a tepid response from HNIs and retail investors. They, then threaten to pull out of the issue at the last moment, unless they are issued the unsubscribed portion at a discount to the issue price.

Primary market veterans say these players ask for a discount of 20-40% for rescuing the issue. “There has been a poor response from retail investors and HNIs, even as institutional investors have come forward to rescue the issues,” says a senior merchant banker with a domestic firm. These financiers also have the ability to pull in 10,000-12,000 retail applications depending on the requirement. Most of these applications are controlled by these brokers and financiers; retail investors just lend their names and demat accounts in return for a commission. These brokers and sub-brokers have a good client base and ask their clients to apply for an IPO, and even offer to finance them.

There is no commitment as to the duration for which the financiers will hold on to the shares. Often, the entire allocation is sold in the first few days after listing. This is the key reason why many newly-listed IPO slip below the issue price within a few days of listing: there was no genuine demand in the first place.